Discussion of an Economic Framework For Conservative Accounting and Bushman and Piotroski (2006)

By W. Guay, Robert E. Verrecchia. 2006

250 citations recorded by the source corpus.

We offer an economic framework for generating predictions about the demand for conservative accounting reports. We define conservatism as: More timely recognition of losses than gains as a result of the costs and benefits of reporting verifiable information by managers and/or firms being asymmetric. We also discuss Bushman and Piotroski's interpretation of the speeds of "good news recognition" and "incremental bad news recognition" in "Basu-type" regressions as separate signals about accounting conservatism. Finally, we suggest avenues for future research that seeks to investigate the links between institutions and contracts, and between contracts and conservatism.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/02f745923c16e3c18632948a6ac0bebab9ba72bb

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Citations in the corpus

The role of information asymmetry and financial reporting quality in debt trading: Evidence from the secondary loan market $ (2008, unknown): “Even though timely gain recognition improves the timeliness of accounting earnings and therefore is expected to make earnings a more informative measure of a borrower’s performance (Ball and Shivakumar, 2006; Guay, 2006; Guay and Verrecchia, 2006), I do not find that it decreases the bid–ask spread.”
Accounting conservatism and corporate governance (2009, methodology): “To reduce this risk we use the two-step Heckman (1979) procedure.”
The Benefits of Conservative Accounting to Shareholders: Evidence from the Financial Crisis (2013, unknown): “Consequently, conservatism could potentially cause inefficient resource allocations and reduction of firm value (e.g., Penman and Zhang 2002; Lev et al. 2005; Guay and Verrecchia 2006; Gigler et al. 2009).”
The Economic Determinants of Conditional Conservatism (2009, unknown): “(i) Contracting incentives Recent work by Holthausen and Watts (2001), Watts (2003), Guay and Verrecchia (2006) and Ball, Robin and Sadka (2008) concurs in pointing out debt contracting as the main economic determinant of conditionally conservative reporting.”
International Differences in Conditional Conservatism – The Role of Unconditional Conservatism and Income Smoothing (2006, unknown): “Comparing the relative levels of conservatism of two samples, or of a sample with an interacted version of model (1), is less obvious, as recently discussed in Guay and Verrecchia (2006).”
A measurement approach to conservatism and earnings management (2013, background): “Electronic copy available at: http://ssrn.com/abstract=1918339 Working Paper No. 11-35 A Measurement Approach to Conservatism and Earnings Management Pingyang Gao University of Chicago Booth School of Business This paper also can be downloaded without charge from the Social Science Research Network ”
Corporate Governance and Firm-Specific Stock Price Crashes (2016, unknown): “Although the quality of the accounting in a firm is a function of the efficacy of both the internal and external corporate governance mechanisms it is also in-itself a governance mechanism [Watts (2003); Ball and Shavakumar (2005); Guay and Verrecchia (2006); Jankensgard (2014); Lara et al. (2009)].”